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Uncovering E-Rate Mismanagement

11/01/05

New subcommittee report details the waste, fraud, and abuse of the E-Rate program over a 21/2-year investigation.

A SUBCOMMITTEE of the Committee on Energy and Commerce last month released the report, Waste, Fraud, and Abuse Concerns with the E-Rate Program (full report at www.thejournal.com/ERate_Report_Oct05.pdf), on the heels of more than 2 1/2 years of investigation into the E-Rate program. The report’s findings and recommendations have enormous implications for school districts and companies serving school districts, as well as the organizations administering and overseeing the E-Rate program. It also provides key findings, recommendations, background, and reasons for the investigation. Plus, it features district case studies from Puerto Rico; El Paso, TX; San Francisco, CA; Chicago, IL; and Atlanta, GA, and presents specific questionable vendor approaches to the E-Rate program. Much of the information for the report was generated by four hearings held since the initiation of the investigation in January 2003.

KEY FINDINGS & RECOMMENDATIONS. There were 16 specific findings of the subcommittee investigation. Most of these findings are concerned with the Federal Communication Commission’s (FCC) lack of oversight of the program, resulting in waste, fraud, and abuse. However, the FCC is not the only party at fault, as the report’s introduction states: “This work highlighted instances in which all program participants — the FCC, USAC (Universal Service Administrative Company), schools, and vendors — have neglected their respective obligations and responsibilities under the program’s rules.”

Findings show that, in general, the FCC did not set up sufficient oversight mechanisms for the program, nor d'es it have sufficient standards of program abuse, nor adequate resources for audits or audit support. Among the problems with the program is that disbursements go directly to vendors rather than schools, thereby weakening a school’s control over the work that vendors perform. In addition, some schools have not used a formal bidding process and technology planning has been inadequate.

Recommendations from the report flow directly from the findings, with the majority of them focusing on greater oversight of the program featuring strong program auditing. One recommendation in the report leavesthe door wide open for major changes in the program when it asks if the program’sarbitrary $2.25 billion annual budget isenough, if USAC management is appropriate,and if the program covers toomuch or too little.

The report d'es, however, include information about how the E-Rate program really can do good things for schools and kids. According to the report, “In the course of this work, it is important to note, the Committee staff observed instances of the E-Rate program working effectively. Such cases helped to underscore the importance of identifying E-Rate program weaknesses and vulnerabilities, and of developing meaningful fixes to the program.” The report specifically cites Chicago’s Nathaniel Green Elementary School and the School District of Philadelphia as examples of the E-Rate program working well.

What’s the Impact? The impact of the E-Rate report is still uncertain. Because of the time and money spent on it, and the fact that the report was generated by a part of the committee that oversees the FCC and the E-Rate program, it is likely that the findings and recommendations will indeed affect the program. The obvious timing for major changes is during the reauthorization of the Telecommunications Act next year, but other changes could happen sooner. Congress may attempt to streamline the entire E-Rate process and make it less confusing. However, it is clear that more reporting, auditing, and general oversight into every aspect of the process also will be implemented. Whether or not Congress can maintain a balance between adding regulations to fight the waste, fraud, and abuse, and making the program more streamlined and easier to use for districts, is afundamental question.

Following are three report messages thatcame across loud and clear:

The FCC needs to do a better job with oversight, monitoring, and auditing, and it needs more money to do it.

There seems to be significant blame directed toward vendors. The frequent use of the term “gold-plating” implies vendors are hoodwinking school districts into getting a range of goods and services that they do not need. Vendors need to be watched more carefully, if not reined in.

There is a related implication that school districts are naïve and do not know what they are doing. Therefore, districts need to plan better, and they need more guidance in planning.

This article originally appeared in the 11/01/2005 issue of THE Journal.

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